The current market situation has left over nine million people with upside down mortgages.
What that means is that the cost of the mortgage is greater than the market value of the house.
This is bad for a number of reasons.
Firstly, it means if the house were to sell tomorrow that these nine million people would still be paying for it even though they no longer owned it.
Secondly, there are more an more houses selling below market value at the moment because the market is cold.
how did the situation arise? There was a huge amount of hype about buying houses with 'no money down' and flipping properties for profit.
Both work on the same theory that the value of a property will always increase.
The theory goes on to tell us that this makes the home an asset.
I disagree.
you see an asset needs to be something that makes you money.
Now the price of a property may increase - but you don't actually get that money until you sell the house.
As such the value of a property is not what it is valued at, but what it sells for.
You could have a tin shed in the middle of a desert, but if someone buys it from you for 3 million bucks then that is what it's worth.
Likewise, you may have a 20 bedroom mansion on the beach that your real estate agent tells you is worth ten million dollars.
But if there's no buyer then it's not earning you anything.
Plenty of people buy homes and refer to them as assets, and thus they justify their debt.
But here's a quick checklist to run through to see if your home is an asset or liability: 1.
Does your mortgage payment cost you more than rent on a similar property would? 2.
Is the value of your mortgage greater than the value of your home? 3.
Do you spend money on the upkeep of your property that you would not spend on a rented property? Every yes is a vote for your property being a liability rather than an asset.
When you buy something - anything - you want to buy an asset.
Other wise sooner or later you will find yourself seeking debt relief in one way or another.
When it comes to properties you need to have the best mortgage terms possible and importantly - critically important - you need to have the raw income to cover AT LEAST the minimum payments on the loan.
As you pay more off the loan the property is likely to fall more and more towards an asset rather than a liability.
So the real trick to debt relief from high mortgage rates is to increase your payments.
The best way to be in a position to do that is to increase your income.